TaxTMI 
TaxTMI 
2025 (5) TMI 6
X X X X Extracts X X X X
X X X X Extracts X X X X
....itutes "income without appreciating the fact that the receipts from General BSS are in nature of cost- recharge which does not constitute as income under section 2(24) of the Act and hence not taxable in India; Receipts from General BSS does not qualify as Fees for Technical Services ('FTS') 3. Without prejudice to the above ground of appeal, erred in holding that the payments received by the Appellant for providing General BSS constitutes FTS under the Act as well as India-UK Double Taxation Avoidance Agreement ('India-UK DTAA'); 4. Erred in not appreciating that services provided by the Appellant are advisory in nature and rendering of said services do not 'make available' any technical knowledge, skill, experience etc to the service recipient and hence cannot be termed as FTS under Article 13(4)(c) of the India-UK DTAA and hence not subject to tax in India. Receipts towards access to SUN (software) application does not constitute income 5. Erred in holding that the payments received by the Appellant towards access to SUN (software) application amounting to Rs 22,44,349 constitutes 'income' without appre....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... primarily in the nature of Management Support Services and the cost incurred towards rendering of such services is allocated among Shell Group concerns using the allocation key on a cost to cost basis. The AO held the BSS Arrangement as Fees for Technical Services (FTS) in the hands of the assessee and accordingly brought the same to tax. The AO in this regard placed reliance on the Ruling of Authority for Advance Ruling (AAR) in the case of SIMPL (application no. 833 of 2009 dated 17.01.2012). The AO also treated the amount received by the assessee towards usage charges of SUN Maintenance Software treating the same as royalty. The assessee raised further objections against the draft assessment order of the AO, before the DRP who confirmed the addition made by the AO towards BSS services based on the AAR Ruling. The DRP also confirmed the treatment of usage charges of SUN Maintenance Software as royalty. The assessee is in appeal before the Tribunal against the final order of assessment passed by the AO as per the directions of the DRP. 4. We heard the parties and perused the material on record. With regard to treatment of BSS as FTS in the hands of the assessee the ld. AR subm....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... AAR which held the same to be 'fee for technical service' in the case of SIMPL. Though the assessee during the assessment proceeding had objected for placing reliance on the ruling of the Hon'ble AAR as being not binding on the assessee, the lower authorities failed to agree with the assessee's contention and held that as per section 245S of the I. T. Act, the ruling of the Hon'ble AAR had binding effect on the assessee unless there is a change in law or facts. The relevant extract of the Hon'ble AAR is cited herein under for ease of reference: "We therefore rule on Que.No.(i) & (ii) that the payment made by the applicant to SIPCL for availing the General BSS under the CCA would constitute income in the hands of SIPCL and is in the nature of fees for technical services within the meaning of Article 13.4 (c) of the DTAC between India and UK; and not in the nature of royalty within the meaning of the term in Explanation 2 to Clause (vi) of Section 9(1) of the Act and under Article 13 of DTAC, while we rule on Que. No. (iii) & (iv). Based on answer to Que. No. (i) & (ii) that the payment received by SIPCL is chargeable to tax in India and the declaration provided by SIPCL th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....l other cases; and (ii) during subsequent years, 15 per cent of the gross amount of such royalties or fees for technical services; and (b) in the case of royalties within paragraph (3)(b) of this Article and fees for technical services defined in paragraph (4)(b) of this Article, 10 per cent of the gross amount of such royalties and fees for technical services. 3. For the purposes of this Article, the term "royalties" means: (a) payments of any kind received as a consideration for the use of, or the right to use, any copyright of a literary, artistic or scientific work, including cinematograph films or work on films, tape or other means of reproduction for use in connection with radio or television broadcasting, any patent, trademark, design or model, plan, secret formula or process, or for information concerning industrial, commercial or scientific experience; and (b) payments of any kind received as consideration for the use of, or the right to use, any industrial, commercial or scientific equipment, other than income derived by an enterprise of a Contracting State from the operation of ships or aircraft in international traffic 4. For the purp....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... * Development and Provisions of Support and Business Tools * Provision of Marketing Support. * Development, Communication and Audit of Standards of * Performance Promotion of Professional Competence * Information Technology Advice and Services * General Financial Advice and Services * Taxation Advice and Services * Legal Services * Employee Relations and Public Affairs/Media Advice and Services * HR Advice and Services* Contracting and Procurement Services * Other Business Support Services A perusal of the list of services relate to managerial services not involving anything of a technical nature. The AAR has discussed the services appearing in the CCA and has concluded that these activities in a retail business are at the core of retail marketing and hence advice tendered in taking a decision of commercial nature is a consultancy service. The AAR has further considered the definition of the word 'Consultancy' as defined in the Oxford English dictionary and has observed that a consultant is a person who gives professional advice or services in a specialized field. Ho....
X X X X Extracts X X X X
X X X X Extracts X X X X
....render it "technical service". The meaning of the word "technical" as given in the New Oxford Dictionary is adjective 1. of or relating to a particular subject, art or craft or its techniques : technical terms (especially of a book or article) requiring special knowledge to be understood : a technical report. 2. of involving, or concerned with applied and industrial sciences : an important technical achievement. 3. resulting from mechanical failure : a technical fault. 4. according to a strict application or interpretation of the law or the rules : the arrest was a technical violation of the treaty. 9. Having regard to the fact that the term is required to be understood in the context in which it is used, "fee for technical services" could only be meant to cover such things technical as are capable of being provided by way of service for a fee. The popular meaning associated with "technical" is "involving or concerning applied and industrial science". 10. In the modern day world, almost every facet of one's life is linked to science and technology inasmuch as numerous things used or relied upon in every day life is the resul....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d to deduct tax at source on the payment made to the internet service provider. 20. Thus, it is clear from the said decision that any service is construable as technical but one has to see the true import of the service actually rendered and the determination must be made in this context. There is no such discussion in the Impugned order and the finding is based on a generic reference to the meaning of the word 'consultancy' as given in the Oxford English Dictionary. The AAR further holds that the list of services mentioned in the CCA is not an exhaustive list and may include other technical services. Thus Petitioner is correct in contending that the AAR has proceeded on conjectures and surmises to render the finding in the impugned order. 21. The AAR has further held that the services are made available to Petitioner since while providing General BSS, SIPCL works closely with the employees of the applicant and supports/advises them. It is held that Petitioner is able to use the know how/intellectual property generated from the General BSS independent of the service provider and hence the services under the agreement are clearly made available to Petitione....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d by the appellant/revenue, technical knowledge, experience, skill, and other processes had been made available to the Indian affiliate, the agreement would not have run its course for such a long period. 14.1 Notably, this aspect is adverted to in paragraphs 17 to 23 of the impugned order. For convenience, the relevant paragraphs are extracted hereafter: "17. A perusal of the aforementioned provision shows that in order to qualify as FTS, the services rendered ought to satisfy the 'make available' test. Therefore, in our considered opinion, in order to bring the alleged managerial services within the ambit of FTS under the India-Singapore DTAA, the services would have to satisfy the 'make available' test and such services should enable the person acquiring the services to apply the technology contained therein. "18. As mentioned elsewhere, the agreement is effective from 01.01.2010 and we are in Assessment Years 2018-19 and 2019- 120.[sic.....20]. In our considered opinion, if the assessee had enabled the service recipient to apply the technology on its own, then why would the service recipient require such service year after year every year since 2010? ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e same. Of course, that was not a subject of reference before AAR. 26. Thus, we have no hesitation in holding that the impugned order dated 17th January 2012 of AAR suffers from legal infirmity and is quashed and set aside. 27. During the course of the arguments, Mr. Mistry stated that Petitioner only seeks relief prayed in clauses (a) and (b) of the petition and does not press the other prayers. Rule is thus made absolute in terms of prayer clauses (a) and (b) which read as follows - "a) That this Hon'ble Court be pleased to declare that the transactions under CCA do not amount to being technical in nature per Article 13 of DTAA between India and UK and therefore, would not be taxable in India; b) That this Hon'ble Court may be pleased to issue a Writ of Certiorari or a Writ in the nature of Certiorari and/or any other appropriate writ, order or direction under Article 226 of the Constitution of India calling for the records and papers of the Petitioner's case and after examining the legality and validity thereof quash and set aside the impugned order dated 17.01.2012 passed by the Authority in AAR No. 833/2009, in the case of the Pe....
X X X X Extracts X X X X
X X X X Extracts X X X X
....consideration is whether the amount received by the assessee on account of SUN Maintenance Software usage charges is royalty under the DTAA between India and UK. The ld AR argued that it is a settled position that the amount received towards use of computer software is not a payment of royalty since the charges paid are towards use of copyrighted item and not for the use of copyright itself. Therefore the ld AR argued that the provisions of section 9(1)(v) is not applicable as has been held by the AO. Our attention in this regard was drawn to the decision of the Hon'ble Supreme Court in the case of Engineering Analysis Centre of Excellence Pvt. Ltd. vs. CIT (2021) 125 taxmann.com 42 (SC). 7. We in this regard notice that a similar issue has been considered by the Hon'ble Jurisdictional High Court in the case of CIT(LTU) vs. Reliance Industries P. Ltd. (2024) 164 taxmann.com 10 (Bom.) by placing reliance on the decision of the Hon'ble Supreme Court in the case of Engineering Analysis Centre of Excellence Pvt. Ltd.(supra). The relevant observations of the Hon'ble High Court is extracted below - "6. We have heard the Learned Counsel for the parties. We have....
X X X X Extracts X X X X
X X X X Extracts X X X X
....uding the right or interest in copyright, which gave rise to the payment of royalty, would be an income deemed to have accrued in India under Section 9(1)(vi) requiring deduction of tax at source. The orders passed by the High Court were assailed before the Supreme Court. It is also required to be noted that similar issues had arisen before the Delhi High Court interalia in the case of DIT v. Ericsson A.B [2011] 16 taxman.com 371/[2012] 204 Taxman 192/343 ITR 470 and DIT v. Nokia Networks OY [2012] 25 taxmann.com 225/212 Taxman 68/358 ITR 259 (Delhi) The Delhi High Court however took a view contrary to the view taken by the High Court of Karnataka. The Supreme Court examined the issues as arising from the decisions of both the High Courts in the case of Engineering Analysis Centre of Excellence (P) Ltd (supra). The Supreme Court in its decision rendered in the said case upheld the view taken by the Delhi High Court in interpreting such transactions in the context of Section 9(1)(vi) of the Act. The Supreme Court held that considering the provisions of DTAA, there was no obligation on the persons mentioned in Section 195(1) of the Act to deduct tax at source as the distribution agre....